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SCO being pushed toward liquidation


By Jeff Feinman
May 8, 2009 —  One of the most notorious and dragged-out court cases in the technology industry may soon find a quick end.

The U.S. Department of Justice filed a motion Tuesday to convert SCO Group’s Chapter 11 bankruptcy filing to Chapter 7. As a result, all non-exempt property—most likely including SCO’s mobile offerings—would be sold off, and the proceeds from the sale would be distributed to SCO’s creditors, among them Novell and potentially IBM and Red Hat.

Roberta A. DeAngelis, the acting U.S. trustee on the case, cited “continuing loss to or diminution of the debtor’s estates and the absence of a reasonable likelihood of rehabilitation” in her motion, meaning there is little to no chance that SCO would be able to continue on as a legitimate business once its debts are settled. “On three separate occasions over the past 21 months, the debtors have started sale and/or plan processes designed to liquidate and/or reorganize their business. All three of those attempts to resolve the cases failed.”

SCO CEO Darl McBride said his company will counter the motion. “We are reviewing the motion that was filed in Delaware today with counsel and will have a detailed response for the court in due course,” McBride said in a statement. “We plan to oppose the motion and present our own suggested course of action to the court.”

The bankruptcy court judge now can either approve the motion for Chapter 7 or accept SCO’s reorganization plan under Chapter 11.

In early January, SCO filed a Chapter 11 reorganization plan with the United States Bankruptcy Court, looking to divest its OpenServer Unix product line and its mobile business division in a public auction. One of the main goals of the plan was to separate SCO’s intellectual property litigation from its product business. A decision on that reorganization plan is still pending.

SCO’s legal drama began in 2003 when the company sued IBM for an alleged copyright infringement, followed a year later by a slander suit against Novell. Additionally, Red Hat sued SCO in 2003 to counter SCO’s claims that Linux infringes on SCO’s copyright.

In November 2008, a federal court judge issued a final judgment in the SCO vs. Novell case, reiterating a previous order that Novell had retained the copyright to Unix after a 1995 agreement with SCO. The judgment declared Novell as the owner of Unix. SCO’s other cases versus IBM and Red Hat have been stayed until SCO emerges from bankruptcy.


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